Bid bond
A bid bond (bid security) is a bank or surety undertaking submitted with a tender so that the employer can call a stated amount if the bidder withdraws early, refuses to sign the contract, or fails to furnish required performance security after award. In multilateral procurement the instrument is typically structured as a demand guarantee.
Bid bond use on bank export finance desks
On EF desks bid bonds appear at the front of export and project supply tenders. Exporters and EPC contractors ask their banks to issue security in the employer's required form, often with a local bank fronting and a counter-guarantee behind it. World Bank Standard Bidding Documents for works allow the bidder to furnish either a Bid-Securing Declaration or a bid security as specified in the Bid Data Sheet.
When a bid security is required, it must be a demand guarantee in a permitted form, such as an unconditional guarantee from a bank or financial institution, an irrevocable letter of credit, a cashier's or certified cheque, or another security named in the Bid Data Sheet. The World Bank's model bank bid-security form states that the guarantee is subject to URDG 758, the ICC Uniform Rules for Demand Guarantees.
Mechanics under World Bank-style tender rules
Key mechanical features in those Instructions to Bidders include validity for twenty-eight days beyond the original bid validity period, or beyond any requested extension period; rejection of a bid that lacks a substantially responsive bid security when one is required; return of unsuccessful bidders' securities after the successful bidder signs and furnishes performance security; return of the successful bidder's security once the contract is signed and performance security is furnished; and forfeiture if the bidder withdraws during validity, or if the winner fails to sign or fails to furnish performance security.
If the employer requests an extension of bid validity, a bidder may refuse without forfeiting the bid bond; a bidder that agrees must also extend the security by twenty-eight days beyond the extended deadline. For a joint venture, the security must be in the JV's name, or in the names of all future members named in the letter of intent if the JV is not yet constituted.
Bid bond versus performance and advance-payment security
A bid bond is pre-award tender security. A performance bond is post-award security for proper performance. An advance payment guarantee secures repayment of mobilisation or advance sums. Calling conditions differ: bid bonds address tender discipline, while performance and advance-payment instruments address contract execution and prepaid funds. Amounts and currencies are set in the bidding documents, not by a universal schedule.